Africa e-Commerce: The Missing Ingredients

I received death threat, and have been called with dirty names after my recent article: Africa e-commerce: Beyond the Hype. I can easily understand why. Some folks have poorly done their homework, and already invested huge amount of money into e-commerce, and the overall tone of my article sounded very pessimistic, gloomy. Someone wrote “You sounded like a dooms day prophet canonizing his prophesies of a “E-commerce Armageddon ” in Africa.

Believe me, my intention writing that article was not to stop anyone investing in e-commcerce in Africa, nor affect the interest of people how have already invested. I usually share my analysis with my clients and only occasionally make some public articles at siliconafrica.com. The funny side of the whole story is that I consequently received many consulting job requests, and also made few new friends.

My deep belief, based on years of hustling is that the best and most successful businesses are less those which want to act as “change agent”, but those which act as “obedient and convenient servant” any customer could hire to do better what they have been already doing, but with frustration and pain points.

One of the most successful African technology company is M-PESA (M for mobile, Pesa is Swahili for money). M-Pesa is a mobile-phone based money transfer and microfinancing in Kenya. Now, let ponder on the main reason why M-PESA becomes so successful, leading the world in mobile money. It’s simply because –

“North and East African nations already had a system of money transfer inherently linked to the religion of Islam, known as Hawala. In the Hawala system, a user asks a Hawala agent to transfer money to an acquaintance in another location, who then contacts another Hawala agent in the new location to pay the user’s acquaintance. The user then pays the sum to the first agent along with a small fee. The debt between the agents is logged and settled at a later date. MPESA simply rode on this behavior , without trying to introduce new ones and simply made it more efficient by leveraging the mobile network to track the movement of money. The user-agent relationship remained the same while the agent-agent relationship was improved drastically. Instead of logging in transactions on a book and settling them at a later date, the ma-payments system allows the agents to settle money transfer instantly. As with all platforms, when a tech-driven payment business is reintermediating an existing payments business, it should try to bring in added efficiency to the transaction without changing the current user behavior drastically. M-PESA is all about Reintermediate an existing model without changing user behavior on one side. the platform should offer significant advantages over existing mechanisms.” said Sangeet Paul Choudary

This process of innovation without intentional desire to change users’ or customers’ behavior is also called ‘backward compatibility’, which is simply a conscious decision by an entrepreneur to introduce an innovation that fully supports the existing user’s behaviors through the transition phase.

In the short and long term, Backward compatible innovations are the most successful and the most profitable. Here comes the ultimate question “How Backward compatible is your e-commerce innovation or ecommerce platform?”

For those who want to invest into ecommerce in Africa, my advise will be to pay attention to the Forester study on the 4 stages of evolution of eCommerce mentioned in our previous article. This article will solely focus on the necessary ingredients for a prosperous and sustainable e-Commerce industry in Africa, or The 6 missing ingredients.

1. Market makers

Markets makers aggregate buyers and sellers, as ebay.com, Amazon.com, Alibaba.com, craiglist.org, etsy.com do. Aggregators are important to any market, specially in emerging market like Africa. As a demonstration, the very few successful african ecommerce are now aggregators, like eShopAfrica.com, from Ghana, started in 2001, selling arts and crafts from Ghana, Ethiopia, Zimbabwe and Mali to consumers in USA, and UK.

It’s very unlikely that a unique seller, playing on all sides of would have the necessary long term resource to build a large enough customers base and a large enough providers base, and keep that advantage as a long term assets to monetize. Success will come to marketplace builders that quickly understand that dynamic and focus their core competency on brand building and fulfillment guaranty, and open their doors to a myriad of partners to plug into their platform as sellers, buyers agents, or sellers agents.

2. Buyers Agents

Similarly to the Real estate industry, Buyers agents in ecommerce help customers to asses their need and evaluate sellers offerings. There agents could be:

Hotel ranking and customers feedback portal like TripAdvisor which dominates the hotel-review arena, and upraising portal like Expedia, Priceline, Travelocity, Orbitz and Hotels.com

School and teachers ranking site like: RateMyProfessors.com, studentsreview.com, which lets college students nationwide evaluate faculty by posting anonymous comments, or Universities ranking done by US News at http://colleges.usnews.rankingsandreviews.com/best-colleges.

Buyers agents are necessary for consumers decision making and for trust building into any market. The impact of reviews and other consumers feedback on products and sellers has been extensively studied, and in almost any case the studies found that a majaority of consumers will use Google or any comparison or review website to seek information before making a buying decision.

3. Sellers Agents

Sellers agents help manufacturers promote and place their offering into channels. No company however big is it does have the resource to acquire all the individual customers it needs to flourish. This remark is even more acute for B2C (business to Consumers) companies. Amazon.com success is mainly due the huge affiliates network it succeeded to leverage when they got started. Amazon.com affiliate network still play a role in the company distribution channel, but much less as at its beginning.

Most ecommerce website would never have any sales if not the army of hundred and thousands of individual and independent affiliates marketers they could leverage through platform like: Commission Junction or CJ.com, ClickBank.com, LinkShare.com, ShareASale.com, ClixGalore.com, PeerFly.com, MaxBounty.com, Neverblue.com,Chikita.com, etc.

Affiliate marketing is the lifeblood of online commerce. Where are the African affiliates network and programs for Africa Ecommcerce? I don’t know how anyone could succeed or build a profitable online business without having affiliates programs to leverage at scale.

“According to one report, the total sales amount generated through affiliate networks in 2006 was £2.16 billion in the United Kingdom alone. The estimates were £1.35 billion in sales in 2005.[10] MarketingSherpa’s research team estimated that, in 2006, affiliates worldwide earned US$6.5 billion in bounty and commissions from a variety of sources in retail, personal finance, gaming and gambling, travel, telecom, education, publishing, and forms of lead generation other than contextual advertising programs.” Wikipedia.

As for a definition, “Affiliate marketing is a a performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate’s own marketing efforts. There are 4 main players in an affiliate program: the merchant (also known as ‘retailer’ or ‘brand’), the network (that contains offers for the affiliate to choose from and also takes care of the payments), the publisher (also known as ‘the affiliate’), and the customer”. Wikipedia.

In order for Africa’s e-commcerce to flourish and be sustainable, we need local and continent wide affiliate network that could be easily leverage by e-merchants or m-merchants.

4. Payment enablers

As Erik Hersman puts it “A lack of true online payment options is crippling African e-commerce, and South Africa is no exception. The inability to accept payments for products and services on equal footing with the rest of the world means that many viable business options are not available for merchants in Africa.” This statement was made 5 years ago, and not much has changed.

In a poignant article at otekbits.com, Bankole Oluwafemi, shared his experience on how the lack of proper payment enablers is killing African startup and favoring foreign companies coming to Africa. He wrote:

“Our foreign businesses and startup counterparts have many advantages. But the advantage in payments is particularly crushing. Because the infrastructure and regulatory framework around their payments allows merchants keep credit card information for future use, they can practically keep their hands in their customers’ pockets. They can take their money every time it is due – without 1. bothering the user and risking a change of mind.– without 2. interrupting the service, which could annoy the user and lead to a cancellation.

In comparison, online payments in Nigeria is an absolute clusterfuck. I mean total jagbajantis. Acquiring the means to collect people’s money in the first place is a tale of woe and sorrow. And even when you manage to integrate payments into your product/platform, the customer has to bring out their credit card every single time they want to give you money. It’s so much work for the customer that a good number of them will invariably fall off at that point. Not because they don’t like the service. Not because they can’t afford it. But because it’s just so f**ing hard to pay.” otekbits.com

According to Peter Harvey, founder and managing director of PayGate, an online payments solution provider, one solution could be for –

“The merchants who can afford to put in the time and resources, register a business offshore and use banks outside Africa. That means money leaves local economies, which nobody wants. The other alternative is for smaller businesses to use payment aggregators or ‘supermerchants’, but they pay a premium for the service.”

But, In the long run, concludes Harvey, the best hope for success is for governments to take the lead. “Rwanda is an excellent example of a country where there is high-level government commitment to promoting e-commerce, with strong support from the Bank of Kigali and major businesses like RwandAir. They are putting pressure on the banks where necessary, and creating the legal frameworks that are needed to provide security. Those who follow that example will be the first to reap the rewards. Africa is a billion-person market with massive growth potential.”

It’s time for innovation and african ecommerce lobbyists to get into the game here.

5. Fulfillment providers

Fulfillment providers include not only physical distribution, but the information-based coordination that support distribution, as Fedex, UPs, Local or international fulfillment service providers demonstrate.

As Entrepreneur.com puts it “Once your website is up and running–and you’re getting tons of orders–you need a way to promptly fulfill and ship those orders. Entrepreneurs can either outsource the fulfillment and distribution process or set it up in-house. Full-service fulfillment companies offer up an end-to-end solution: They take your products from warehouse shelves, pack them, hand them to shippers and then send an automated e-mail response to your customers to let them know their packages are in transit. They can also handle your credit-card processing, supply current inventory levels to your website, reorder products, offer call-center services, send notices of shipping and handle returns. There are literally thousands of these companies to choose from.”

Unfortunately, the last sentence of the quote is not valid for Africa. Most e-merchants have to care about the fulfillment themselves, adding an additional burden to already meager resources.

We need capable and ready “fulfillment houses” and services providers for Africa e-Commerce to flourish. No matter how attractive an e-commerce site is, an inability to quickly fulfill orders can leave a retailer without much repeat business.

6. Context providers

Context providers create the environment in which e-commerce is conducted , from e-merchant association like “eCommerce Merchants Trade Association” in USA or “Ecommerce Europe” in Europe, to e-mall managers and customers support trainings and courses from local colleges and consultants. Context providers also include policy makers that make laws and regulations to help the industry flourish.

Few countries have already put in place regulations and policies for local e-commerce. But African Government must take more proactive role for the industry to move forward.

My belief is that the first step needed here is for the big African e-commerce companies to be more proactive to create local and continent wide association, and start playing like an emergence industry advocacy group that could influence the destiny of the industry.

The above 6 missing ingredients will require some time to be properly activated, however Africa is awakening and the young generation is eager to take on new opportunities.

As conclusion to this post, I’d like to share the words of one of the Africa e-Commerce Heroes, Sim Shagaya, founder and chief executive of DealDey and Konga in Nigeria, who is trying no matter how hard it’s to build a profitable ecommerce business in Africa. This except is from an article by Catherine Murray at memeburn.com:

” 1. Logistics and fulfillment

To overcome the challenges of a non-existent delivery infrastructure, Shagaya invested in motorbikes, with reliable drivers who deliver products within Lagos. Konga customers also have the choice of paying for their products in cash on delivery, or via card using a wireless terminal on a mobile network – critical in a country where consumers do not have innate trust in secure online payments.

There is potential in the African emerging retail market to leapfrog bricks and mortar stores. With poor transport infrastructure, and high levels of crime in many African cities, it may be easier and safer for consumers to buy products from their homes and bypass stores.

2. Technology

While ecommerce innovation and collaborative filtering has already been invented by the likes of Amazon and Groupon, and this knowledge can be used and applied to development in Africa, it doesn’t always work so well in an emerging economy. With a user base predominantly accessing the site via the mobile web, and a large technological development skills gap on the continent, this technology has to be changed and tweaked for it to really work well for consumers.

3. Supply chain

Ecommerce retailers in a more structured manufacturing economy mitigate the risk of dead inventory by keeping less merchandise in warehouses than made available in the catalogue, and bringing in more stock quickly from local manufacturers when demand requires it.

This doesn’t work in a country like Nigeria where almost everything an ecommerce site sells is imported. Kongo has a full inventory sitting and waiting for delivery in warehouses, which presents a much higher risk profile for dead inventory and financial loss, and this balance must be managed carefully.

4. Skilled human resources

Governments have not done Africa any great services, by not investing in education, says Shagaya, and it’s not a problem that’s going to be quickly rectified any time soon. Nigeria, like many African countries, has no history of structured retail, few skilled digital and web developers and poor technological infrastructure. Konga, for example, has needed to build technological skills as well as retail skills at the same time. Kongo and DealDey rely on working with skilled people from outside of Nigeria, and need collaboration and investment from outside the country to work.

Building awareness and trust

In Africa, says Shagaya, we need a different way of doing things for the consumer, for the following reasons:

• The population knows nothing but informal retail
• There is a purely mobile environment
• Social networks like Facebook and Twitter have high penetration
• There are rising income and consumption levels
• Physical and virtual spaces need to be combined to create safe retail environments” – memeburn.com

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Mawuna Koutonin is a world peace activist who relentlessly works to empower people to express their full potential and pursue their dreams, regardless of their background. He is the Editior of SiliconAfrica.com, Founder of Goodbuzz.net, and Social activist for Africa Renaissance. Koutonin’s ultimate dream is to open a world-class human potential development school in Africa in 2017. If you are interested in learning more about this venture or Koutonin’s other projects, you can reach him directly by emailing at mk@linkcrafter.com.